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Business News/ Opinion / Online-views/  Rcom, MTN need to show some clarity
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Rcom, MTN need to show some clarity

Rcom, MTN need to show some clarity

Grace period: An MTN mobile shop in Cape Town, South Africa. Exclusive talks between MTN and RCom are due to end on 8 July.Premium

Grace period: An MTN mobile shop in Cape Town, South Africa. Exclusive talks between MTN and RCom are due to end on 8 July.

India’s Reliance Communications Ltd (RCom) and South African MTN Group Ltd need to give investors clarity. The proposed $80 billion (Rs3.46 trillion) tie-up between the two telecom operators is at the risk of falling apart unless the companies can stabilize their market capitalizations. In the last month, RCom has lost 25% of its value and MTN nearly 15%.

Grace period: An MTN mobile shop in Cape Town, South Africa. Exclusive talks between MTN and RCom are due to end on 8 July.

It’s three weeks since the legal challenge surfaced, and Anil Ambani looks far from finding a settlement.

Worse, MTN and Reliance can’t easily restructure the deal. A complex web of political and regulatory constraints led both sides to settle on a reverse takeover in the first place. An alternative deal probably has less chance of success.

So investors are left with no real idea if a deal is possible, or what it might look like. Talks between the two groups are due to end on 8 July. There’s no shortage of speculation: a full-blown takeover of MTN by RCom, finding extra capital from equity or sovereign wealth funds to finance a deal—to cite but a few.

One thing is clear. RCom’s and MTN’s volatile share prices are making an already difficult job even harder. Agreeing the terms of a share swap will be much trickier. To compound the problem, investors on both sides are worrying that either could lose out in a deal.

If RCom and MTN want to stabilize their share prices, they should clarify two things. First, whether MTN is prepared to agree a deal clouded by legal uncertainty and which could potentially get dragged through the Indian courts. Second, the structure a deal might take.

Credible answers to these questions might help secure a deal—if indeed, there’s even one left to be made.

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Published: 07 Jul 2008, 12:20 AM IST
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